OTC trading platform of the year: Tradeweb

Risk Awards 2020: To keep volumes growing, platform had to confront “incumbent’s dilemma”

Enrico Bruni

Trading venues often tell their stories in numbers. Tradeweb, for example, sends a monthly email that trumpets the platform’s average daily volume, expressed in dollar terms and as a percentage change, year-on-year.

Those numbers show the platform is having a banner year, with volumes growing strongly in its biggest, most established markets – rates trading was up 35% year-on-year for the 12 months to the end of June – as well as in credit and equities, where Tradeweb is a newer entrant.

But behind the numbers is a more interesting story of a platform that faces a host of threats, some of them obvious and current – like the ever-present rivalry with Bloomberg and the exchange-traded universe – others lurking and latent, such as the possibility that more trading will be done via new venues, new protocols, or bilaterally via dealer-to-client streams.

It’s the “incumbent’s dilemma”, says Enrico Bruni, managing director and head of the firm’s Europe and Asia business: “We’re trying to figure out what the issues are that our customers face and trying to iterate all of the time. We don’t want to fall into the trap of resting on our laurels.”

One big issue facing banks and asset managers is the need to cut costs. So, Tradeweb has spent a lot of the past 12 months trying to convince customers the platform is worth the fees they pay. In some cases, this simply means making life as easy as possible – or easier than at rival venues, at least.

Process trades are a case in point – big transactions that are agreed bilaterally but executed on a platform, where different rules and obligations suddenly kick in.

“I run several process trades a day in interest rate swaps, and I cannot remember the last time I used a rival,” says one trader. “The way they have set themselves up for interdealer process trades – pulling up a ticket, populating the trade details, selecting your counterparty and sending it through – the ease of use is significantly better than rival platforms. However you do the trade, it is always very clear what you are doing.”

That has an impact on a desk’s workflow and its speed, which potentially feeds through to profitability.

“In a fast market, if I worked my way through a rival offering [to Tradeweb], I might start missing trades off the back of it, because it is not nearly so easy or user friendly in my opinion. That could definitely impact revenue,” says an interest rate swap trader at a second dealer.

The package tool is useful for clients and it isn’t available on rivals. That has been a good development this year

Sell-side trader

In other cases, Tradeweb is trying to help resolve newer problems.

Its list-trading tool has allowed investors to move cleared swaps positions between central counterparties when needed, and this year also allowed 18 firms to migrate sterling Libor-referencing portfolios to those using Sonia – the market’s approved replacement for the dying benchmark.  

List trading has also been expanded, allowing users to simultaneously trade interest rate swaps, inflation swaps and government bonds in a single package – another attempt to reduce manual workloads and increase efficiency.

“It allows users to create packages of up to 250 instruments in each of two legs,” says Bruni. “Before this existed you had to manage it manually or separate out the bonds and swaps in the transaction, but now the banks can better manage the offsetting risks.”

One sell-side trader praises the addition: “The package tool is useful for clients and it isn’t available on rivals. That has been a good development this year.”

Better compression

The original use of the list tool was to compress buy-side portfolios, replacing overlapping layers of swaps with an economically equivalent, but smaller, book. It continues to be popular, with $37 trillion of contracts compressed in the last year.

“They have a good penetration of clients and their compression tool is more widely used than rival offerings, with a bigger concentration of clients,” says one sell-side head of sales.

The platform has also expanded or added other services for the buy side. In 2018, it plugged interest rate swaps into its transaction cost analysis tool. And in October this year, Tradeweb announced partnerships with Cassini Systems and OpenGamma, to broaden the range of TCA information available to include collateral management and optimisation, thus giving users a better idea of their all-in trading costs.

“That was spurred on by our conversations with the buy side,” says Bruni.

The growth figures suggest all of this work is paying off, so far. And Tradeweb’s April initial public offering on Nasdaq should give the firm more strategic freedom, reducing the equity held by the big banks, and bringing in new investment. Bruni is tight-lipped about the venue’s strategic plans but says the IPO is already helping in other ways.

“The impact has been most obvious in hiring,” says Bruni. “We have been investing a lot in Asia, and in China. Since going public it is much easier to attract talent. Candidates can research us very easily.”